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How China plans to lead the computer chip industry

Professor Patrick Yue


Professor Yue works with the next generation of computer chips

On a college campus on the outskirts of Hong Kong, a group of engineers are designing computer chips that they hope will be used in the next generation of Chinese smartphones.

Patrick Yue leans back in his chair in a campus cafe, sporting a Stanford University t-shirt. He is a leading engineer and professor who oversees the project.

His research team designs optical communication chips, which use light rather than electrical signals to transmit information, and is needed in 5G mobile phones and other Internet-connected devices.

He talks about the challenges China faces in developing a world-class computer chip industry.

"I actually think that the actual designers will be as big bottlenecks as manufacturing. We don't have nearly as many research institutes and industrial bases to train the designers," he says.

His department is co-funded by Huawei, the Chinese communications and telecommunications giant at the center of an international political storm.

In May, the United States added Huawei to a list of companies that US companies cannot trade unless they have a license, which is due to security concerns.

Rivals is a season of in-depth coverage on BBC News about the US-China sovereignty over trade, technology, defense and soft power.

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Many industry observers fear that the US and Chinese trade wars risk taking up the global technology supply chain.

In particular, China relies on foreign companies for computer chips (or semiconductors), the small devices used in everything from consumer electronics to military hardware.

"Politically, everything can be used as a negotiating power," Yue says.

"If these companies and countries start holding back on technology, everyone will be harmed. It's not good from a technological point of view," says Yue.

China has made no secret of its desire to become self-sufficient in technology. The nation is both the world's largest importer and consumer of semiconductors.

It currently produces only 16% of semiconductors that drive its technical boom.

But it has plans to produce 40% of all semiconductors it uses by 2020, and 70% by 2025, an ambitious plan driven by the trade war with the United States.

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Chinese President Xi Jinping wants to end the country's dependence on foreign chip suppliers

In May 2018, China's President Xi Jinping met with the country's leading scientists and engineers and invited specialists to work for self-confidence in nuclear technology production.

That meeting came just a month after the US government banned US companies from selling components to ZTE, China's second largest telecommunications network manufacturer.

The ban highlighted to China's leaders that the country's technological boom depended on foreign technology.

In October this year, the Chinese government in its latest bid to help wean the country's tech sector from US technology created a $ 29 billion (£ 22 million) fund to support the semiconductor industry.

"There is no doubt that China has the engineers to make chips. The question is whether they can make it competitive," questioned Piero Scaruffi, a Silicon Valley historian and researcher working in Silicon Valley.

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"Sure, Huawei can develop its own chips and operating systems, and the government can make sure they will be successful in China. But Huawei and other Chinese phone manufacturers are also succeeding in foreign markets, and that's a whole other question: Will Huawei & # 39; "Chips and operating systems are as competitive as Qualcomms and Android? Probably not. At best, it will take several years before they are," adds Mr Scaruffi.

Scaruffi estimates that China could be as many as 10 years behind the leading manufacturers of advanced computer chips. The majority of chips manufactured for advanced electronics are manufactured by specialized foundries such as the Taiwanese Semiconductor Manufacturing Company (TSMC). It produces more than 70% of chips designed by third-party companies.

It is difficult to secure the best machines needed to make advanced chips.

"To start with equipment, its very high precision equipment. You have to print very nice features. The equipment needed to have this kind of technology is controlled by a few companies in the world," says Mr Yue.

He believes that Chinese technology is three to four generations behind companies like TSMC. China lacks industry experience to manufacture high end chips, he says. But he thinks companies like Huawei are already competitive in designing chips.

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Huawei has been blacklisted by the US government

Where does this leave the tech giant Huawei?

Yue claims that Huawei is trying to replicate the successful business models for companies like Samsung, which produce their own computer chips – rather than trying to match Beijing's industrial ambitions.

"You can almost see them as an integrated company with the expertise of Apple or Qualcomm," Yue says.

Li Changzhu is a lifelong employee of Huawei and chairman of the company's handset operations. He joined the company 23 years ago as a new graduate and has seen it grow to the international tech giant. He argues that the goal of companies like Huawei is simply to meet consumer needs.

"We are open to using other suppliers' chipsets. Every year we buy many chips from Qualcomm. We are open to them. We use the best chipsets to satisfy our customers," he says, sitting next to a technical conference in Macau , a semi-autonomous South China town.


China strives to supply 70% of its demand for chips by 2025

Growth in the semiconductor industry is usually driven by disruptive new technology. At the end of the 2000s, the introduction of smartphones increased the demand for the small integrated circuits that control everything from memory to Bluetooth and wifi.

But today, China's ambition is expected to dominate sectors such as artificial intelligence and 5G to further increase demand for advanced chips.

Industry analysts like Scaruffi question China's ability to truly innovate. "Every Chinese city wants to build its own Silicon Valley. It tends to be more driven from the top. Silicon Valley had a great advantage, that it was very far away from political power," Scaruffi says.

He believes that China's technological success lies in the implementation of technology rather than creation.

"If your metric is how many people use smart phones to shop, China will win big time. But if your metric is Nobel Prize winner, then China loses badly. China has obviously been very successful in implementing technology in a way that dramatically changes society," says he.

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